Intrinsic value of NetSol Technologies Inc. - NTWK

Previous Close

$7.40

  Intrinsic Value

$0.86

stock screener

  Rating & Target

str. sell

-88%

Previous close

$7.40

 
Intrinsic value

$0.86

 
Up/down potential

-88%

 
Rating

str. sell

We calculate the intrinsic value of NTWK stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.70
  16.43
  15.29
  14.26
  13.33
  12.50
  11.75
  11.07
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.61
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
Revenue, $m
  72
  84
  96
  110
  125
  140
  157
  174
  193
  212
  232
  252
  274
  297
  320
  344
  370
  396
  423
  452
  481
  512
  544
  577
  612
  648
  686
  726
  767
  810
Variable operating expenses, $m
  73
  84
  97
  110
  124
  140
  156
  173
  191
  210
  227
  247
  269
  291
  314
  337
  362
  388
  415
  443
  472
  502
  533
  566
  600
  635
  672
  711
  751
  793
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  73
  84
  97
  110
  124
  140
  156
  173
  191
  210
  227
  247
  269
  291
  314
  337
  362
  388
  415
  443
  472
  502
  533
  566
  600
  635
  672
  711
  751
  793
Operating income, $m
  -1
  -1
  0
  0
  0
  1
  1
  1
  2
  2
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
EBITDA, $m
  6
  7
  8
  9
  11
  12
  13
  15
  16
  18
  20
  22
  23
  25
  27
  29
  32
  34
  36
  39
  41
  44
  47
  49
  52
  55
  59
  62
  66
  69
Interest expense (income), $m
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  105
  123
  141
  161
  183
  206
  230
  256
  282
  310
  340
  370
  402
  435
  469
  505
  542
  581
  621
  662
  706
  751
  798
  847
  898
  951
  1,006
  1,064
  1,124
  1,187
Adjusted assets (=assets-cash), $m
  105
  123
  141
  161
  183
  206
  230
  256
  282
  310
  340
  370
  402
  435
  469
  505
  542
  581
  621
  662
  706
  751
  798
  847
  898
  951
  1,006
  1,064
  1,124
  1,187
Revenue / Adjusted assets
  0.686
  0.683
  0.681
  0.683
  0.683
  0.680
  0.683
  0.680
  0.684
  0.684
  0.682
  0.681
  0.682
  0.683
  0.682
  0.681
  0.683
  0.682
  0.681
  0.683
  0.681
  0.682
  0.682
  0.681
  0.682
  0.681
  0.682
  0.682
  0.682
  0.682
Average production assets, $m
  36
  42
  48
  55
  62
  70
  78
  87
  96
  105
  115
  126
  136
  148
  159
  172
  184
  197
  211
  225
  240
  255
  271
  288
  305
  323
  342
  361
  382
  403
Working capital, $m
  23
  26
  30
  35
  39
  44
  49
  55
  61
  67
  73
  79
  86
  93
  101
  108
  116
  125
  133
  142
  152
  161
  171
  182
  193
  204
  216
  229
  241
  255
Total debt, $m
  14
  19
  25
  32
  39
  46
  53
  62
  70
  79
  88
  98
  108
  118
  129
  141
  152
  165
  177
  191
  204
  219
  233
  249
  265
  282
  299
  318
  337
  357
Total liabilities, $m
  33
  39
  45
  51
  58
  65
  73
  81
  89
  98
  108
  117
  127
  138
  149
  160
  172
  184
  197
  210
  224
  238
  253
  268
  285
  301
  319
  337
  356
  376
Total equity, $m
  72
  84
  97
  110
  125
  141
  157
  175
  193
  212
  232
  253
  274
  297
  320
  345
  370
  397
  424
  452
  482
  513
  545
  578
  613
  649
  687
  727
  768
  811
Total liabilities and equity, $m
  105
  123
  142
  161
  183
  206
  230
  256
  282
  310
  340
  370
  401
  435
  469
  505
  542
  581
  621
  662
  706
  751
  798
  846
  898
  950
  1,006
  1,064
  1,124
  1,187
Debt-to-equity ratio
  0.190
  0.230
  0.260
  0.290
  0.310
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.420
  0.420
  0.430
  0.430
  0.430
  0.430
  0.430
  0.440
  0.440
  0.440
  0.440
Adjusted equity ratio
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683
  0.683

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Depreciation, amort., depletion, $m
  7
  8
  9
  9
  10
  11
  12
  14
  15
  16
  15
  17
  18
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  48
  50
  53
Funds from operations, $m
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  48
  51
Change in working capital, $m
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
Cash from operations, $m
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
Maintenance CAPEX, $m
  -4
  -5
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -48
  -50
New CAPEX, $m
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
Cash from investing activities, $m
  -9
  -11
  -11
  -13
  -14
  -16
  -17
  -19
  -20
  -23
  -24
  -25
  -28
  -29
  -31
  -33
  -36
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -55
  -58
  -61
  -65
  -68
  -71
Free cash flow, $m
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
Issuance/(repayment) of debt, $m
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
Issuance/(repurchase) of shares, $m
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  20
  21
  22
  22
  23
  24
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
Cash from financing (excl. dividends), $m  
  17
  18
  20
  21
  23
  24
  26
  27
  28
  30
  29
  31
  32
  32
  34
  35
  38
  39
  41
  42
  44
  46
  48
  49
  52
  55
  57
  59
  62
  65
Total cash flow (excl. dividends), $m
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  14
  15
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
Retained Cash Flow (-), $m
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -20
  -21
  -22
  -23
  -23
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
Prev. year cash balance distribution, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  0
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  0
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  87.6
  77.5
  69.2
  62.2
  56.3
  51.3
  47.0
  43.3
  40.0
  37.1
  34.8
  32.7
  30.8
  29.1
  27.6
  26.1
  24.8
  23.6
  22.5
  21.4
  20.5
  19.5
  18.7
  17.9
  17.1
  16.4
  15.7
  15.1
  14.5
  13.9

NetSol Technologies, Inc. is a provider of information technology (IT) and enterprise software solutions. The Company is engaged in the licensing, customization, enhancement and maintenance of its suite of financial applications under the brand names, NetSol Financial Suite (NFS) and NFS Ascent, for businesses in the lease and finance industry. The Company's segments include North America, Europe and Asia-Pacific. The Company's offerings include its global solution, NFS. The four applications under NFS have been designed and developed for a setting, and deals with multinational, multi-company, multi-asset, multi-lingual, multi-distributor and multi-manufacturer environments. Each application is used independently to address specific sub-domains of the leasing/financing cycle. The Company's platform, NFS Ascent, offers a solution for the auto and equipment finance and leasing industry. NFS Ascent platform is a lease accounting and contract processing engine.

FINANCIAL RATIOS  of  NetSol Technologies Inc. (NTWK)

Valuation Ratios
P/E Ratio -16.6
Price to Sales 1.3
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow -41.4
Growth Rates
Sales Growth Rate 0%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate -34.8%
Financial Strength
Quick Ratio 1
Current Ratio 1
LT Debt to Equity 1.6%
Total Debt to Equity 17.5%
Interest Coverage 0
Management Effectiveness
Return On Assets -5.2%
Ret/ On Assets - 3 Yr. Avg. -2.8%
Return On Total Capital -7%
Ret/ On T. Cap. - 3 Yr. Avg. -3.8%
Return On Equity -7.9%
Return On Equity - 3 Yr. Avg. -4.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 43.1%
Gross Margin - 3 Yr. Avg. 41.4%
EBITDA Margin 9.2%
EBITDA Margin - 3 Yr. Avg. 13%
Operating Margin -1.5%
Oper. Margin - 3 Yr. Avg. -0.2%
Pre-Tax Margin -1.5%
Pre-Tax Margin - 3 Yr. Avg. -0.7%
Net Profit Margin -7.7%
Net Profit Margin - 3 Yr. Avg. -4.9%
Effective Tax Rate -100%
Eff/ Tax Rate - 3 Yr. Avg. -27.8%
Payout Ratio 0%

NTWK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NTWK stock intrinsic value calculation we used $61 million for the last fiscal year's total revenue generated by NetSol Technologies Inc.. The default revenue input number comes from 0001 income statement of NetSol Technologies Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NTWK stock valuation model: a) initial revenue growth rate of 17.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for NTWK is calculated based on our internal credit rating of NetSol Technologies Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of NetSol Technologies Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NTWK stock the variable cost ratio is equal to 101.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NTWK stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for NetSol Technologies Inc..

Corporate tax rate of 27% is the nominal tax rate for NetSol Technologies Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NTWK stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NTWK are equal to 49.8%.

Life of production assets of 7.6 years is the average useful life of capital assets used in NetSol Technologies Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NTWK is equal to 31.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $62.789635 million for NetSol Technologies Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 11.860 million for NetSol Technologies Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of NetSol Technologies Inc. at the current share price and the inputted number of shares is $0.1 billion.

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